SEOUL (Reuters) - South Korea’s Ssangyong Motor Co Ltd (003620.KS) on Friday said it is reconsidering establishing a joint venture in China due to diplomatic tension between Seoul and Beijing over the deployment of a U.S. missile defense system.
South Korea’s fourth-biggest automaker by sales signed a letter of intent last year to build cars in China with Shaanxi Automobile Group Co Ltd [SHAANN.UL], headquartered in Xian.
But the Chinese automaker has not pushed for the project since Seoul’s decision earlier this year met with anti-Korean sentiment in China, Ssangyong said. The system is intended to deter any attack from North Korea, but Beijing objects to the potential reach of the system’s radar into Chinese territory.
“We are considering outsourcing and other ways to make cars in China,” a Ssangyong spokesman told Reuters.
Ssangyong, owned by Indian conglomerate Mahindra & Mahindra Ltd (MAHM.NS), currently exports cars to China making them subject to heavy import duties. Only a small portion of its exports are destined for China.
“It has been canceled. This (joint venture) project no longer exists,” an official from Shaanxi Automobile’s strategic development department said, declining to comment further.
Asked whether the venture had been canceled, Ssangyong’s spokesman said the project was not completely over.
Ssangyong joins a number of Korean firms whose businesses have been affected by the political row. Hyundai Motor Co’s (005380.KS) sales have fallen sharply in China while most of Lotte Shopping Co Ltd’s (023530.KS) hypermarkets in the country have closed.
Even before the row, the prospect of Ssangyong producing cars in China was uncertain. Due to excess auto production capacity, China’s industrial policymakers are no longer so enthusiastic about foreign automakers forming joint-ventures.
In January-September, Ssangyong reported an 8 percent increase in domestic sales compared with the same period a year prior. Exports, which make up a quarter of total sales, fell 29 percent.
Reporting by Hyunjoo Jin; Additional reporting by SHANGHAI newsroom; Editing by Christopher Cushing